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Maruti should benefit from the positive news flow

Maruti should benefit from the positive news flow
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First Published: Tue, Sep 01 2009. 10 20 PM IST

Updated: Tue, Sep 01 2009. 10 20 PM IST
Car maker Maruti Suzuki Ltd reported an impressive 41.6% growth in sales for August, with both domestic sales and exports doing well.
Exports grew by 156% off a low base, but even domestic car sales grew by a commendable 30.5%. Domestic volumes have grown by about 30% for two months in succession now.
Maruti is benefitting from a low base even in the domestic business with monthly sales of passenger cars averaging 54,400 between July and December 2008.
Last month, the company sold nearly 70,000 passenger cars in the domestic market, and if it maintains volumes at this rate, growth would continue to be around 30% for the rest of the year.
According to an analyst, much of the growth is being contributed by the top 20 cities in the country.
In July, the company disclosed to this analyst, who declined to be named, that sales in the top 20 cities grew by at least 40%, much higher than the company average.
Rural sales account for only about 13% of total sales and so the lower-than-normal monsoon isn’t expected to have a big impact on the company this year.
Maruti has been doing relatively better than its competitors and has been gaining market share thanks to its broad product portfolio, which caters to most segments and has a variety of options in the small-car segment.
This, coupled with the surge in exports in recent months, has led to significant earnings upgrades lately. Citigroup Inc., for instance, raised its earnings estimates for the current fiscal year to March 2010 and the next fiscal year by 17% and 24%, respectively, last month. The institutional broker believes that Maruti is best positioned to benefit from the recovery in urban consumption.
But at current levels of Rs1,540, the stock has already reached Citi’s price target and now trades at at least 21 times expected earnings for the current year.
While there’s no doubt that the company is doing extremely well, valuations are clearly getting stretched.
Having said that, if the liquidity-driven rally continues, Maruti should be a major gainer given that news flow would be rather positive as far as volume and profit growth is concerned.
Write to us at marktomarket@ livemint.com
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First Published: Tue, Sep 01 2009. 10 20 PM IST